Fertilizer is no longer subject to VAT

In late 2014, the Lao Cai DAP Fertilizer Plant No 2 put out the first batch of products. 

The plant, plus the Dinh Vu – Hai Phong DAP Plant No 2, which became operational in 2011, both make 660,000 tons of products a year, satisfying 70-80 percent of domestic demand.

Prior to that, Vietnam relied 100 percent on DAP imports, mostly from China, South Korea and the former Soviet Union.

The opening of Vietnamese-invested DAP plants, as analysts said, was a bit too late compared with DAP plants in the world, including China, established tens of years ago. 

Since the plants in China had been running for a long time, they had finished the amortization period and could make products at low production costs.

Many Vietnamese invested DAP plants took losses as Chinese DAP fertilizer, with competitive prices, was imported into Vietnam en masse. 

Vietnam spent trillions of dong to build fertilizer plants, but it opened the market door to Chinese DAP products. This was why the two plants fell into deadlock.

The situation of the Vietnamese plants became worse after the new tax law took effect. Under the new law, fertilizer, which bore 5 percent VAT, is no longer subject to VAT. 

This means that fertilizer manufacturers cannot get a VAT refund for input materials, estimated at hundreds of billions of dong a year.

In an effort to rescue fertilizer plants, the Ministry of Industry and Trade (MOIT) decided to apply safeguard measures against imports.

In August 2017, after three months of investigation, MOIT released a decision on imposing a temporary anti-countervailing duty of VND1,855,790 per ton on DAP and MAP fertilizer, commencing from August 19, 2017.

The temporary safeguard measure, under the decision, would be valid for no more than 200 days. After March 6, 2018, MOIT will decide either to officially impose the tax or stop the measure.

The decision was applauded by Vietnamese enterprises. Nguyen Tien Dung from the Agricultural Products and Materials JSC said if Vietnam can protect the domestic production DAP plants be able to better serve Vietnam’s agriculture.

In fact, the protection of domestic DAP plants aims at other purposes. If no Vietnamese fertilizer plants can exist, Chinese fertilizer may come back and corner the domestic market.

Right after the safeguard measure was applied, both DAP No 1 and DAP No 2 reported profit. However, their accumulative losses are still high. 

Therefore, the performance of the plants will depend on whether the safeguard measure continues to be applied after March 6, 2018.

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Chi Mai